WASHINGTON, DC-First Potomac Realty Trust has acquired a core asset in the Capitol Hill submarket--its first purchase in the District and a departure from its more recent trend of acquiring value-add industrial and office properties in outlying areas. 

The REIT has purchased 500 First Street, NW for $68 million. The nine-story, class A office building is next to the Georgetown Law School campus, near Union Station and the US Capitol. It was an off-market trade, according to Douglas J. Donatelli, chairman and CEO of First Potomac. The 129,035-square-foot property was originally constructed in 1969, and is now undergoing a full-building renovation that is almost done. The purchase price incorporates the cost to complete this renovation project. 

It is fully leased to the Government’s General Services Administration through July 2016 and will generate an unleveraged return on the purchase price of approximately 7.5% when the renovation is complete. Located on close to one-half acre, the property can support an additional 30,000 square feet of office space. 

First Potomac financed the acquisition with a 10-year, $39-million first mortgage loan with an interest rate of 5.7% as well as borrowings under its unsecured revolving credit facility.

Indeed, last month the company expanded this facility from $175 million to $225 million with the addition of two new lenders, US Bank and TD Bank.

Earlier this year the REIT tapped the equity markets with a public offering of five million shares, raising roughly $75 million. In an earlier interview with GlobeSt.com, CEO Doug Donatelli said that it planned on using the proceeds to pay down its line of credit and for acquisitions. 

In the statement about the DC acquisition, Donatelli noted that the purchase reflects the company’s strategy of acquiring stable, income-generating properties. While the REIT has a history of such acquisitions, more recently it has acquired buildings at below replacement costs, with the goal of bringing occupancy levels up. Two recent purchases it made fit this profile: an office building in Oakton, VA for $13.8 million and its acquisition of Corporate Campus at Ashburn Center. After acquiring the Corporate Campus, First Potomac rapidly added tenants. The Oakton building was purchased empty, having been occupied by Lockheed Martin for more than 20 years before its lease expired in November 2009. 

The latest acquisition reflects another facet of First Potomac’s investment goals, Donatelli tells GlobeSt.com--adding stable, cash-flowing properties to the portfolio for balance. “We are looking at a number of acquisitions--some of which are more Downtown offices, some of which are suburban and suburban flex--with this in mind.” Right now there are a number of opportunities in the DC area, he adds. “We are seeing real signs of recovery and leasing demand.”